The gritty neighborhood in Glendale, California—eight miles north of Hollywood—disappears once inside the studio's ivy-covered hedges, which surround a 13-acre campus akin to that of a small liberal arts college. Stone walkways and arched breezeways connect Mediterranean-inspired buildings, meandering past elm trees that rise above blooming flowers. Fountains, a man-made waterfall and a stream, which empties into a lagoon, disguise the noise of two nearby freeways.

It's an environment designed to cultivate creativity, as is the management strategy honed within the walls of one of the world's most innovative companies. The strategy: foster spontaneous discussions, encourage risk-taking, openly discuss mistakes, share successes and nurture professional development. The result: The digital-animation studio is perennially ranked in the top tier by Great Place to Work Institute and boasts a 97 percent retention rate.

"DreamWorks Animation is an incredibly creative and collaborative operation because of the culture," says communication strategist Evan Rosen, who studied the company for his book The Culture of Collaboration.

Its main campus offers perks intended to reduce stress and distractions: a doctor's office; yoga and kickboxing classes; one full-size kitchen on every floor stocked with all types of snacks; and, of course, Monday-night movie screenings. Cabanas, wooden picnic tables and lively conversation fill a courtyard outside the cafeteria, which serves free breakfasts and lunches as well as dinner for employees working late.

Everything from the complimentary food to the layout was chosen with a common goal: encourage spontaneous conversations, with the belief they lead to great ideas.

"Many times true innovation, true original ideas, don't happen in a conference room or in someone's office," says Dan Satterthwaite, head of human resources. "They happen in hallways, they happen outside. It's the function of people running into each other that was really thought through in the layout of the campus."

For creativity to flourish, Satterthwaite also advocates the importance of providing a sense of security. The 2008 financial crisis tested that conviction. Economic anxiety triggered layoffs in many organizations. In Hollywood, that unease came amid an industrywide decline in DVD sales. Paramount Pictures, Sony Pictures Entertainment Inc., and Warner Bros. Entertainment Inc. all trimmed their workforces. The Walt Disney Co. cut more than 600 positions in 2010 and 2011.

But DreamWorks executives decided that job insecurity would be "antithetical to creating great creative work," Satterthwaite says. At an all-staff meeting, executives told the workforce that the company would avoid layoffs "at all costs."

It was a bold promise—one that it kept—for a company whose stock rises or falls based on the fortunes of two or three films a year. In contrast, rival studios such as Warner Bros. Pictures distribute 20 films each year, minimizing the impact of a single flop or average box-office performer. DreamWorks also bet big on 3-D, releasing all of its films in the format since 2009, and relies on revenue from DVD sales, which have declined steeply. In addition, more studios released family and animated films last year, significantly increasing competition.

"I think this year feels like it's a bit more of a normalized market," said DreamWorks CEO Jeffrey Katzenberg in May during the company's first-quarter earnings conference call. "There are far fewer animated titles and far fewer family titles."

DreamWorks shares fell to an all-time low last year with its Puss in Boots opening softer than its previous releases. Shares rose after June's Madagascar 3 beat analyst expectations, with several upgrading their ratings. Others voiced concern about falling DVD sales and consecutively releasing five original films in the next two years.

"Historically, DWA's original films have not performed nearly as well in international markets as sequel films, and for the last two years it has largely been international performance that has kept overall DWA box office afloat" notes a June report by Cowen & Co. analysts Doug Creutz and Jason Mueller, who maintained a neutral rating on the company's shares.

"When you put two or three things out a year and that is the core of your business, they pretty much all need to be home runs," Satterthwaite acknowledges. And yet he maintains that the keys to leapfrogging competitors technologically—DreamWorks uses proprietary software—and in storytelling come from providing a culture that pushes risk-taking.

"You cannot have an environment where people feel if they make a mistake they're going to lose their jobs," Satterthwaite says. "There are some organizations where that is the reality or the perception of reality. You cannot push the boundaries of creativity in that kind of environment."

Kathy Altieri agrees. As a production designer, Altieri is what she calls the "boss artist" on a film. Working on the new sci-fi buddy film Happy Smekday!, due out in late 2014, she coaxes her artists into stretching beyond the familiar with as little instruction as possible.

"You want to let people be their best selves and grow and rise to the occasion rather than tell them what to do," she says. "I'd much rather have someone reach and fail and reach again and fail again than just have someone follow what I think is right. They usually don't fail. They figure it out and they grow."

Altieri and others describe a workplace where they don't shy away from talking about what went right and wrong. It plays out in what the studio calls "postmortems," gathering and sharing insight from technology projects and films.

Postmortems prevent the same mistake from being repeated, Satterthwaite says. Departments identify problems and offer recommendations on how to avoid them next time.

The postmortem isn't about finger-pointing, says Gregg Taylor, head of development. "I don't think we ever sit back and say, 'Who made the mistake?' " Taylor says.

The postmortems look toward working better in the future, not dwelling on the past, and focus on processes, not people, Satterthwaite says. Findings are shared through meetings and panel discussions. And it's modeled from the top.

In companywide updates, Katzenberg will stand in front of the workforce and talk about marketing missteps or poorly timed DVD releases. "He's the first to get up there and say, 'We took a risk, and it didn't work. Not that we wouldn't take the risk again, but now we've learned from it,' " Satterthwaite says. "It begins to make it OK to be introspective and evaluate what did not work. That is an absolutely necessary component of pushing creativity and innovation."

Satterthwaite and his HR team also conduct midproject interviews, so feedback can lead to changes before it's too late. They meet one-on-one with each employee halfway into that person's time on a project. (Films take four to five years to complete.) They talk about the production's work environment, processes or workflows and general ideas or concerns.

"Regardless of what the outcome is—and quite honestly regardless of whether there is an actual action to the feedback—the fact that the person is having a chance to express it is extremely meaningful," Satterthwaite says.

Over the years, the company also has invested in a robust education department. It offers classes on painting, design, sculpting—even improvisation.

"If you go to the campus, there are events happening all the time that support the creative growth and the creative capital on that campus," says John Tarnoff, principal at consultancy Newspeak Media who was head of show development at DreamWorks from 2003 to 2009.

DreamWorks prides itself on recognizing accomplishments. It lists every employee of the company in each film's credits and holds parties for premieres.

In the spring, its Tech Achievement Awards lauded 25 individuals at a lunch with their supervisors, the chief technology officer and the CEO. Each fall, it holds DreamCon, an in-house twist on Comic-Con International, where artists and hobbyists showcase their work.

And most recently, DreamWorks held its summer social on the Sunset strip in West Hollywood, hosted by Bill Damaschke, who rose to chief creative officer after starting as a production coordinator. Similarly, Peter Ramsey began as a story artist on Shrek the Third and now is directing Rise of the Guardians, scheduled for release in November.

"You really feel valued as a creative person," Ramsey says. "They recognize what it is you have to offer and they nurture it and they support it." wƒm